R3: AMZN, LVMH, SHLD, GCO

R3: REQUIRED RETAIL READING

March 7, 2011

RESEARCH ANECDOTES

A study by Luminosity suggests that Boomerangers (college educated young adults with full-time jobs who live at home with their parents) are amongst the most impulsive shoppers. One-third of Boomerangers make impulse purchases with no planning or research. Perhaps part of this behavior stems from the fact that 64% of Boomerangers said they themselves were the greatest influence on their purchasing decisions.

Check out New Balance’s latest product intro, the “890” with REVlite. The shoe goes head to head with Nike’s LunarGlide in New Balance’s latest TV commercial in a spot reminiscent of the Pepsi Challenge. The shoe weighs 9.7oz, which is 1.6oz lighter than the competing Nike shoe, and is premium priced at $99.99. Overall, more good news for the retailers as the innovation pipeline remains robust across the athletic footwear space.

Consistent with reports from other footwear retailers last week, Genesco’s management highlighted that February comp sales were up +10% - representing an sequential acceleration to January trends. It’s also worth noting that management teams appear to be taking a conservative approach to positive performance early in the quarter with Q1 results largely back-end loaded given the Easter shift into April this year.

OUR TAKE ON OVERNIGHT NEWS

Privacy suit takes aim at Amazon -Amazon is the target of a class action lawsuit that alleges the e-retailer violated consumers’ privacy by installing unauthorized cookies that gave it access to consumers’ personal information. The suit, filed this week in U.S. District Court in Seattle by two named plaintiffs, says Amazon in 2008 knowingly used fake codes to communicate itsprivacy policy to Microsoft’s Internet Explorer web browser, which led the browser to accept cookies that would it otherwise would have blocked when consumers chose certain privacy settings. <InternetRetailer>

Hedgeye Retail’s Take: If you ever wondered how Amazon knows what you want before you actually search for it on the company’s site, now you know.

Inditex Buys Space on 5th Avenue -Inditex Group, parent of fast-fashion retailer Zara, has acquired a 38,800-square-foot retail property at 666 Fifth Avenue for $324 million. The space, between 52nd and 53rd streets, was formerly the NBA Store and is part of the building’s 90,000-square-foot retail condo that includes a Hollister flagship and a Uniqlo flagship due to open this fall. Uniqlo set a retail record in Manhattan last year when it agreed to pay $300 million over the course of a 15-year lease, or about $20 million per year, surpassing Gucci’s $16.5 million in annual rent at Trump Tower. Inditex said it will use the space to open “one of the most emblematic Zara flagships worldwide.” The Spanish behemoth is clearly smitten with the location and the building, which it called “one of the most symbolic in the Big Apple.” It’s also one of the priciest, commanding some of the highest rents in the city. The NBA Store closed last month after balking at the landlord’s rent increase to more than $2,000 a square foot. <WWD>

Hedgeye Retail’s Take: In strange bit of irony, all of the major fast fashion retailers (H&M, Zara, Uniqlo, and Forever 21) now have major flagship stores on 5th Avenue within a three block radius. So much for 5th Avenue being solely a haven for luxury.

Sears Targets Youth -Sears is getting in touch with its more youthful side. According to John Goodman, EVP of apparel and home, the retailer is reaching out to a younger, trendier customer in hopes of becoming “a more aspirational place” for shoppers. To achieve this, Sears — which has been working hard to more effectively compete against rivals such as Kohl’s — has in recent weeks signed deals with contemporary fashion brands and celebrities for exclusive lines. The retailer is kicking things off next month with UK Style by French Connection. Sourced, developed and manufactured by LF USA’s Regatta division, the line will comprise contemporary clothing and accessories, including shoes, for women, men and children. <WWD>

Hedgeye Retail’s Take: We’re not sure why it’s taken so long for Sear’s to realize it has a problem with an aging customer base. Unfortunately, filling the store with youthful brands is probably not going to be a needle mover any time soon.

Best Buy Losing Market Share - Just two years after its arch rival was knocked out of the ring, Best Buy is itself on the ropes. The company revealed a problem last December that has left investors scrambling for answers. Even with bankrupt Circuit City out of the picture, the retailer was losing market share, especially in the key television and computing categories. Best Buy shares have since tumbled 21% and now trade at a mere nine times this fiscal year's consensus earnings. Investors shouldn't assume Best Buy simply needs time to recover. Rather, the threats it faces are likely only to worsen. Take Amazon.com, whose relentless growth has undercut the raison d'être of specialty retailers. That is true both in books—where Borders Group recently filed for bankruptcy protection—and in electronics. <WallStreetJournal>

Hedgeye Retail’s Take: With bookselling much more concentrated than consumer electronics, we do believe BKS has an opportunity to actually gain share from BGP’s demise.

LVMH to Take Controlling Bulgari Stake - LVMH Moet Hennessy Louis Vuitton SA is to take a controlling stake in Bulgari SpA, a person familiar with the matter said Sunday, underscoring the French group's acquisitive streak as the luxury market rebounds. The deal, expected to be announced Monday, would put the family-controlled Italian maker of jewelry and fine watches into the hands of LVMH, which owns some 50 luxury brands, including Louis Vuitton, Moët et Chandon and TAG Heuer. Bulgari has a market value of about €2.3 billion ($3.22 billion). Paolo Bulgari and Nicola Bulgari, along with Chief Executive Francesco Trapani, also a relative, own about 51% of the company. <WallStreetJournal>

Hedgeye Retail’s Take: In stark contrast to Arnault’s approach with Hermes, this deal with Bulgari appears to benefit both franchises on multiple levels, but most notably is highly amicable. Meanwhile, Hermes CEO Thomas commented at a press conference last week that the company is considering removing its listing from the London exchange to keep investors from trading shares - this one is far from over.

Michael Kors Opens Paris Flagship - Michael Kors is marking his 30th anniversary with the opening of his first freestanding store in France, a flagship here that is his largest store to date worldwide. The 7,000-square-foot unit at 279 Rue Saint-Honoré sits on the designer’s favorite retail stretch — what he calls the “stroll from Hermès to Colette.” It is the first of his stores to offer a full assortment of accessories and ready-to-wear from both his main Michael Kors collection and the Michael Michael Kors and Kors Michael Kors lifestyle lines. <wwd>

Hedgeye Retail’s Take: A substantial step forward for the designer best known for his womenswear prowess. After expanding beyond his runway collection in 2004, this is Kors’ first international full collection footprint with five such boutiques stateside – a key step in growing the brand that is perhaps best known on Main Street for its eyewear collection.

First Chinese Leather Fashion Association to be Established - The first Leather Fashion Design Association is officially founded in the beginning of March in Haining city, China, with Zhang Sifeng, a renowned fashion designer, being appointed president of the association, while Haining China Leather Marketing President Ren Youfa being the honorary president, according to the China Leather Industry Association. Ren Youfa said in the opening ceremony that there are nearly one thousand designers serving the leather sector in Haining city, and therefore the establishment of fashion association is good news to the designers as it will serve as a channel to reach out to enterprises and update their products in terms of design. <FashionNetAsia>

Hedgeye Retail’s Take: The latest from China in a move to improve the quality of its manufacturing after losing its position in the global market as the most affordable.

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